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Business Tips – Holding Directors Personally Liable for Company Debts

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Please note that this pertains to the South African Companies Act and Best Practice requirements.

Today’s article should perhaps, come with a warning – this is going to hurt someone, somewhere and at some time and it is going to hurt badly!

It’s all about if you run your business recklessly or fraudulently and I am very serious people, when I tell you that it does carry a jail sentence and you will do jail time.

Have a look at the facts. There have been some pretty well known big Corporate companies that have gone for a ‘ball of chalk’ in the last couple of years. Names like Tollgate, Leisurenet and Fidentia spring to mind. In all of these cases, the directors and officials of the company have been handed hefty jail time sentences. In all cases, the business has been run recklessly and fraudulently. In all cases, the media have had plenty to say and you must admit, they have kept us pretty up to date with what has been happening.

Now here’s the crunch. Don’t for a minute think, that because you are a very small company, and that most people have never heard of you, and therefore you will fly happily under the radar. That would be silly in the extreme. If you are a business owner and you are deliberately running your business in a reckless or fraudulent manner, you could well be the next guest of the Department of Correctional Services.

Think about this though, if you are an unpaid supplier of someone who is running their business in a reckless or fraudulent manner, it may very well make you feel heaps better when they end up as a guest of the Department of Correctional Services, but that does not necessarily mean that you will get your money at the end of the day – you could still be ‘out of pocket’.

The problem here is that although the Companies Act allows the courts to declare that the Directors of a Company are personally liable for debts and losses incurred, specifically in the instances where those Directors have carried out the business of the Company in a reckless or fraudulent manner, the courts themselves do not enforce this easily. Again be warned, just because the courts don’t award or enforce this easily, doesn’t mean that it doesn’t happen.

So be careful about how you run the affairs of your Company. Be honest, be upfront, and for goodness sake do not engage in fraudulent dealings. You will be held accountable at some point.